How To Buy A Second Home With No Down Payment

How to buy a second home with no down payment

Investing in real estate can be a smart way to put your money to work. However, coming up with an expensive down payment is a hurdle for most new real estate investors. Luckily, it is possible to learn how to buy a second home with no down payment.

If you are hoping to uncover how to buy a second home with no money down, you are in the right place. We will explore the possibilities of purchasing a second property without a hefty down payment available.

Is it possible to buy a second home with no down payment?

First things first, is it possible to buy a second home with no down payment? Yes, it is completely possible to buy a second home with no down payment. And you don't have to house hop to do it! (i.e. where you buy a home, wait for it to appreciate, and sell it in order to afford the next one).

However, the best financing opportunities with no money down requirements are designed for primary residences. They are also typically government-backed programs like the FHA loan etc.

With that, you could take advantage of one of these government-backed programs to acquire a second home and turn it into your primary residence.

Although it can be an inconvenience to move, it could open the right doors to set the foundation of your real estate portfolio. You could turn your current residence into a rental property and move into the second home to possibly avoid any down payment requirements.

Second home mortgage requirements

It can be more difficult to find a mortgage for a second home with no money down requirements. That’s because lenders perceive a greater risk if it is your second home. Due to this risk, lenders will have more stringent second home mortgage requirements.

For instance, if you are buying a second home to rent out, in order to qualify for a mortgage (and any tax deductions) you'd need to:

  • Meet the debt-to-income requirements to qualify for a mortgage on a second home.
  • Live in the property for at least 14 days per year.
  • Reside in the house for at least 10 percent of the number of days you have it rented out.

Be sure to check with your lenders about the requirements for a second home mortgage so you can plan accordingly.

How to buy a second home without a down payment

The upside of buying a second home without a down payment can provide the backing you need to get started in real estate investing.

Here are some options to consider as you explore your purchase of a second home.

USDA loan

USDA loans are backed by the U.S. Department of Agriculture. Depending on your situation, you can potentially obtain this loan with zero money down. However, you’ll need to be willing to turn this property into your primary residence within a few months of closing.

Beyond the residence requirements, USDA loans are only available in particular areas of the country. Specifically, USDA loans are designed to encourage rural development.

You can determine if the area you are interested in fits within the USDA guidelines in a handy map. Additionally, you cannot earn more than 115% of the median household income of the area to qualify.

Although there are some unique requirements associated with USDA loans, it is a worthwhile option. When it comes to how to buy a second home with no down payment, you can potentially obtain a loan without a down payment.

VA loans

VA loans are backed by the Department of Veterans Affairs to support veterans and military members in their pursuit of homeownership. As a veteran or military member that meets the service requirements, you can obtain a mortgage without putting a dollar down.

The catch is that you’ll need to turn this property into your primary residence within a few months of closing. However, it could provide the opportunity to rent out your current residence.

As an eligible veteran, you have the opportunity to use the VA loan multiple times. Each time you pay off an existing VA loan, you’ll be able to take out another VA loan.

FHA loans

FHA loans are government-backed loans made available through the Federal Housing Administration, which is a part of the U.S. Department of Housing and Urban Development.

Like the other government-backed loans available through this list,  you’ll need to intend to turn this into your primary residence. Unlike the other government-backed loans on this list, you’ll be required to make a relatively small down payment. Depending on your financial situation, you may need to put down 3.5% or 10% to obtain a home mortgage.

With that, you will need to come up with some down payment funds. However, the requirements are more reasonable than the traditional logic of putting down 20% on a home purchase.

Assumable mortgages to buy a second home

In some cases, you may be able to pursue an assumable mortgage. With that, you, as the buyer, would take over the payments of the seller’s existing mortgage.

Although this is not a common opportunity, it could be the right fit for you. You won’t have to make any down payments. Instead, you’ll simply start making payments in place of the previous owner.

Using the home equity in your current home

If you have a substantial amount of equity built in your current home, then tapping into that resource could help you cover the costs of obtaining a second home. For example, a home equity loan or home equity line of credit could provide the funds you need to cover the purchase costs of your second home.

Although there are pros and cons to consider when pursuing a cash-out refinance, it could be the funding solution you were hoping for. Of course, a HELOC or home equity loan will likely extend the term of your current mortgage. But depending on your situation, it could be worth it.

Be sure to research this carefully and take a look at your personal financial standing before making this decision.

Should you buy a second home with no down payment?

The right answer will depend on your situation. In some cases, learning how to buy a second home with no down payment is the right choice. In other cases, you may be better off waiting until you can afford to make a down payment to obtain a second home.

If you choose to purchase a second home with no down payment, remember that it will be more expensive in the long term. But if you have particular real estate goals in mind, it could be the right move.

Want some help starting your real estate journey? Take a look at our full guide to help you get started.

The bottom line to buying a second home with no money down

A real estate portfolio can be a valuable way to build passive income into your life. As you explore your options, learning how to buy a second home without a down payment is a smart move.

Now that you know more, you can weigh the pros and cons for yourself before moving forward.

Remember, there is no right or wrong way to pursue real estate investing. Move forward with a strategy that you feel comfortable with.

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